Friday, February 7, 2014

The January jobs report was disappointing, but it doesn't alter the big picture: the economy is most likely still growing at a modest 2-3% pace.

Both the December '13 and the January '14 jobs reports were weaker than expected, but as the chart above shows, stuff like that happens from time to time. We'll probably see some stronger-than-expected reports in the near future that offset this.

Actually, the household survey in January found a lot more private sector workers than expected (313K vs. 142K). The household survey is much more volatile than the establishment survey, so this doesn't mean a lot. But as the chart above shows, the two surveys do track each other pretty closely over time. Sometimes one zigs while the other zags, the the past few months have been a good example of that.

On balance, as the chart above shows, private sector jobs are growing at roughly a 2% annual pace on average, which is not particularly remarkable nor scary.

The public sector has borne the brunt of net job losses in this recovery, as the chart above shows. That's bad for those affected, of course, but a good thing for the economy overall, since the productivity of the private sector is much higher than that of the public sector. Government is still huge, but it is shrinking, and that gives the private sector more breathing room. Keynesians view any shrinkage in government or government spending to be a negative, but supply-siders see a decline in the relative size of government—considering its monstrous size—as a positive.

Since this report doesn't change the big picture materially, it has few if any implications for the course of monetary policy, which is likely to continue to taper. And since there are no signs of emerging weakness, it is good for risk assets, if for no other reason than that they yield so much more than cash, and cash yields almost nothing.